A just-in-time supply chain is one that moves material just before it's needed in the manufacturing process. The technique reduces the need to store excessive levels of materials in a warehouse, and it works best when each operation is closely synchronized with the subsequent operations.
Learn more about this supply chain method, and how you can apply one to your business.
What Is a Just-in-Time Supply Chain?
The just-in-time supply chain aims to reduce timing delays and costs by perfecting the timing of ordering materials. The goal is to have no more materials on hand—and no fewer—than you need at that moment. This streamlines processes, reduces storage costs, and forces a business to have an intimate understanding of its supply chain.
- Acronym: JIT
In supply chain methods other than JIT, any unusual spikes in customer demand are offset by safety stock. Safety stocks also provide insurance against failures in production, quality issues, and other unforeseen issues along those lines. With JIT, on the other hand, the business attempts to synchronize its operations so perfectly that there isn't a need for added safety stocks.
How Does a Just-in-Time Supply Chain Work?
The goal of any optimized supply chain is to deliver what your customers want when they want it. Ideally, a business can accomplish this while spending as little money as possible. JIT is just one tool that some supply chain professionals use to get that done.
JIT supply chains can also be applied to many other operations a business may perform. JIT can be applied to human resources and accounting departments to ensure the most effective use of time and resources for the tasks at hand.
While JIT is attractive to many who work closely with supply chains and finances, the practice is difficult to implement. To have an optimized supply chain, an organization must supply its customers what they want, when they want it—and spend as little money as possible getting that done. Those customers may be internal customers or external customers.
In either case, one of the most important aspects of JIT is understanding the demand of those customers. The key to understanding that demand is communication. Communication can be direct, or it can make use of systems such as enterprise resource planning (ERP) and materials resource planning (MRP).
Once you understand your customer demand, the next step is to cement a strong relationship with a supplier. You'll depend on this supplier to get you what you need exactly when you need it. Most suppliers aren't able to immediately distribute supplies, so a successful JIT supply chain depends on a business knowing exactly how early they need to order materials for it to arrive at the perfect moment they're needed.
While the idea of understanding customer demand and supplier relationships is simple in concept, it's much harder to perfect these understandings in real-life situations.
Potential Issues With a Just-In-Time Supply Chain
By calculating that compressed lead time and reducing the cost of carrying a safety stock inventory, you will likely come up with an attractive projection. JIT methods appear to give the promise of leaner lead times and lower inventory costs. However, to truly understand the impact of this supply chain method, consider the indirect cost of maintaining the systems and communications to know what materials and components need to be delivered just in time.
When there's a production issue or quality issue that impacts supply, or a demand spike that suddenly creates a short supply scenario, just-in-time methods can cause unexpected and unbudgeted costs to exceed those original projections. Fluctuations in customer demand can also disrupt the performance of JIT methods. The fees, production disruptions, and other issues can end up having a severely negative impact on business operations.
Not all businesses are suited for just-in-time supply chains. The more consistent supply and demand are for a business, the more likely it is that they will be able to effectively employ JIT strategies.
In many cases, because of the need to react to a failure in just-in-time practices, suppliers will need to sacrifice customer supply. They may have to sacrifice certain products, or they may have to sacrifice entire customer bases if they are unable to meet their demands. In those cases, the hidden costs of JIT are hard to measure, but over time they have caused many companies and supply chain organizations to eschew just-in-time as a viable operational process.
- A just-in-time supply chain management style aims to reduce costs associated with processes by moving materials only when they are needed in the process.
- A well-managed JIT system drastically reduces costs such as storage costs associated with keeping materials on hand until they're needed.
- The challenge of a JIT system is that it doesn't adapt well to fluctuations in demand and disruptions to production processes.